Apple ‘active’ in talks on cash, but no changes

Protest against security contractor the biggest fireworks at meeting

DanGallagher

CUPERTINO, Calif. (MarketWatch) — Apple Inc. wrapped up its annual shareholders meeting on Wednesday with little mention of the massive $137 billion in cash on its balance sheet, beyond CEO Tim Cook reiterating that the company’s board is holding “active talks” on the matter.

Reuters

Apple CEO Tim Cook, shown here at the debut of the iPad Mini late last year, addressed shareholders on Wednesday.

Prior to Wednesday gathering at its Cupertino, Calif., headquarters, Apple
AAPL, -0.82%
had been subject to a growing drumbeat of rumors prior to the meeting that it might raise its dividend, split its stock or take some other action to return more cash to shareholders. But the topic only came up briefly, and no formal action was taken or promised beyond Cook saying that Apple’s board of directors was having “very active discussions” on the matter.

Instead, the only real controversy at the meeting took place outside, where a handful of members of the Service Employees International Union, or SEIU, protested one of the company’s security contractors.

Late in the day, New York State Comptroller Thomas Napoli released a statement saying his office is “disappointed that Apple did not offer a proposal to return to shareholders some of the $137 billion in cash reserves it is holding.” Napoli is trustee of the New York State Common Retirement Fund, which has almost $153 billion under management, including 2.9 million Apple shares valued at approximately $1.3 billion.

Apple has been under growing pressure from some shareholders — mostly notably hedge fund start David Einhorn of Greenlight Capital — to return more of that cash, especially as the once-highflying stock has crumbled by more than 35% over the past five months.

Cook did address the slumping stock price at the beginning of his prepared remarks at the meeting. The shares topped out above the $700 mark in late September, around the launch of the iPhone 5, and now trade near $450.

The shares recently traded down about 1% at $444.53 after the meeting wrapped up at midday Wednesday.

“I want you to know that I don’t like it, either,” Cook said of the stock price. He maintained that the best course of action for Apple to take is to keep the focus on making “great products” that will be in demand by consumers.

“If we get that right, revenue and profits will follow,” he said.

Only one shareholder brought up the cash issue and lawsuit by Einhorn during the question-and-answer session of the meeting. Cook maintained that he believed the lawsuit by Einhorn — which forced Apple to remove a proposal from its proxy late last week — was a “silly sideshow,” but maintained that the company took the matter of its large cash account seriously.

“This is a serious subject,” he said, adding that the board was currently holding “very active discussions” on the matter.

The matter of the company’s cash wasn't on the official agenda for the meeting, after Einhorn prevailed in federal court in a lawsuit accusing Apple of improperly “bundling” the issue of seeking shareholder approval for issuing preferred stock with other matters on the company’s proxy statement. Read: Apple loses key issue in Einhorn battle

As a result, Apple removed Proposal 2 from a shareholder vote on Wednesday — leaving only the informal question-and-answer period for the cash issue to be addressed at the meeting.

Dan Gallagher/MarketWatch

Members of the Service Employees International Union protest one of Apple’s security contractors outside the company’s annual meeting on Wednesday.

The protest by the SEIU came up briefly during the meeting, when a representative of the union asked Cook about Security Industry Specialists, or SIS, which provides security services for Apple. The speaker claimed the contractor was resisting efforts by its employees to unionize. Cook said he knew nothing of the matter and promised he would look into it.

Apple shareholders also re-elected its entire slate of directors, and voted down two shareholder proposals regarding executive retention of stock grants and the creation of a board committee on human rights.

Last year, Apple began to heed the call of many who said its bank accounts were overflowing with unnecessary levels of cash. The company instituted a dividend worth $2.65 per share, along with a $10 billion buyback.

The Internet-enabled car

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Imagine streaming a film straight to your car. Sam Schechner checks out a demo version of GM's 4G enabled car with its own set of apps and built-in cameras that you can watch on your iPad from the comfort of your own home.

But the cash has continued to balloon on the company’s balance sheet, and with the share price weakening as more investors grow concerned about growth prospects, greater competition for the iPhone and future products, some say Apple could increase its appeal to a larger base of shareholders by giving back more of its cash.

Not all shareholders agree that the company needs to give back more cash, however. Also, Peter Misek of Jefferies & Co. wrote in a note Wednesday ahead of the meeting that Apple may need to keep more cash on hand than many realize. He believes the company “is potentially facing a very rough two-year period due to capital-expenditure requirements, new subsidy models, slowing international sales, and whitebox smartphones.”

Misek added that “we see an acceleration of traditional dividends/buybacks as providing greater strategic flexibility for Apple and value to shareholders than preferred shares over the intermediate to long term.”

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